India’s fintech boom is so crazy that we always heard only one side of the story. We have seen multiple fintech companies sitting at sky-high valuations and huge funding rounds. There are some companies that are reporting hundreds of crores in profits every year. When we dig deeper, we get to know that lending is their core business. But there is a story that most of us don’t even know about how a fintech startup used to shine like a star, but suddenly it ended up.
The story is about a company that is also into the lending business at its core. We need to understand this story so that we will also explore the flip side of the lending business. The company I am referring to is Zest Money. This journey was started with a desire to solve a major problem that Indians face.
When ZestMoney was started in 2015 by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, they saw a big problem in India’s credit system. Millions of people in India wanted to buy things like smartphones, furniture, and home appliances on easy EMIs, just like people in developed countries.
But most of them didn’t have credit cards, formal jobs with payslips, or any credit history. So, banks and traditional lenders wouldn’t give them loans or credit. This meant that even though they wanted to buy things in small monthly payments, they couldn’t.
So, ZestMoney’s goal was very simple: to help these people get credit easily using technology and data. Their solution was smart but easy to use. They created a digital platform where people could buy products on EMI without needing a credit card or filling out lots of paperwork.
Instead of depending only on traditional credit scores, they looked at other data points like how people behave online, simple questions about their habits, and their past transactions. By doing this, ZestMoney was able to figure out if a person was trustworthy enough to get a loan. This made it possible for millions of Indians who were ignored by traditional banks to buy what they needed. It was a perfect match for India’s huge population of people who wanted credit but didn’t have access to it.
Now if we look at the traction and financials, it shows us the actual scenario they are in. In FY23, ZestMoney’s financials showed an interesting picture. Their revenue grew by 76%, reaching around ₹249.8 crore, up from ₹138.4 crore the year before. This looked good on paper, showing strong growth in their business.
But at the same time, their net loss was huge at ₹412.4 crore, and their total expenses were ₹662.2 crore. So even though they were making more money from operations, the losses kept piling up. According to some reports, Zest Money has spent around INR 1000 for acquiring a single customer. They had spent huge sums of money for just acquiring customers, and if they take enough loans or do enough purchases, it would actually help them to make money.
Initially when they started this company, they received great support from investors. ZestMoney raised over $130 million in debt and equity funding from big-name investors like Goldman Sachs, Omidyar Network, and Ribbit Capital. These investors saw potential in the idea of making credit accessible to millions of Indians and believed ZestMoney could become a major player in the fintech space.
But it didn’t work as planned or believed. Why did it fail so badly? One major reason is regulatory changes. In June 2022, the Reserve Bank of India (RBI) introduced strict rules for fintech companies, especially for Buy Now, Pay Later (BNPL) businesses like ZestMoney. These rules said that fintechs can’t just load prepaid instruments with credit unless they partner properly with banks or NBFCs (Non-Banking Financial Companies). This directly affected ZestMoney’s core business model of giving easy credit without complex paperwork. Suddenly, they had to change how they operated, which was not easy at all.
Then comes the second, which is loan defaults. Many customers didn’t pay back their EMIs on time or at all. This led to a big rise in NPAs, which means loans that were not recoverable. Each default meant ZestMoney had to absorb the loss or pass it to their lending partners, which strained their balance sheet further. Now this is something we need to remember: in the lending business you can get a customer easily, which means lending is easy, but recovery is the toughest part here.
This hit the company so badly. So, after the problems started for the company, they tried selling this company to PhonePe in late 2022. But it didn’t happen. PhonePe saw too many issues in the company, and somehow, the deal failed. After this, even investors become reluctant to put in more money.
So, the company is already making huge losses, and investors are not giving more money to operate. Well, financial troubles started and at the same time, regulatory issues arose. Customers haven’t paid on time. So due to the abovementioned, the company had to stop its operations. That’s how Zest Money ended the story.
This story is something that people don’t know much about. So, next time you are planning to start a lending business or anything of this sort, remember, giving loans is not the hard job; recovering them is the hard job.
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